Report: Apple Stock Fall Causes Domino Effect on Its Carrier, Supplier Chokehold
January 29, 2013 2:10 PM
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Steve's Jobs; successor Tim Cook has faced fire for his company's slipping margin.
Apple no longer commands the "cool" clout it once did
Apple, Inc. (
) under Steve Jobs established itself as perhaps the most coveted OEM in the smartphone industry. The late Apple CEO and cofounder, and his trusted legion of executives
squeezed suppliers tighter
than perhaps any company before boosting Apple's margins to gaudy heights. And on the carrier side, carriers like Sprint Nextel Corp. (
) were willing to
$15.5B USD, to be precise
), mortgaging their future to get access to the iPhone.
But Apple's ability to squeeze partners on both sides of its product chain may be coming to a close. After a quarter of record profits, but a
disappointing slip in margins
, investors have sent Apple stock on a humbling plunge from a height of $705 USD/share to around $450 USD/share in recent weeks. And Apple's partners are taking note.
A year ago, Apple enjoyed a 44.7 percent margin, but in the last quarter that figure had slid to 38.6 percent. Apple managed a record profit, but only by growing sales volume.
The biggest threat to Apple's empire may come from carriers moving away from a model of subsidies. Due to the iPhone popularity, carriers are willing to pay Apple a subsidy of around $400 USD per iPhone, plus a small cut of on-going monthly service revenue. Other premium phones from Apple's rivals typically command around $250 to $300 USD.
But the last American carrier to get the iPhone -- T-Mobile USA -- will be
phasing out subsidies
just as it begins to carry the iPhone. T-Mobile USA's deal with Apple has not been made public, but is rumored to be more favorable for the carrier than similar deals with AT&T, Inc. (
) and Sprint -- and less favorable for Apple.
T-Mobile won't be subsidizing the iPhone. [Image Source: Flickr]
An entry-level 16 GB iPhone 5 costs $649.99 USD without subsidies. Flagship Android phones and Windows Phones cost hundreds less unsubsidized. Some fear customers will bail on the iPhone once carriers start passing the costs on to the consumers by cutting subsidies.
Both AT&T and Verizon Wireless, America's largest carriers have warmed to the idea of unsubsidized handsets after initially scoffing at the idea.
Comments AT&T CEO Randall Stephenson, "That's something we've looked at on several occasions. I kind of like that idea. It's something we're going to be watching."
And Lowell McAdam, CEO of Verizon Wireless -- a joint subsidiary Verizon Communications Inc. (
) and Vodafone Group Plc. (
) -- seemingly went back on
, remarking, "[The strategy is] very intriguing."
Interesting, indeed. Carriers may be experiencing a bit of envy that T-Mobile is not suffering the same exploitive terms they agreed to, to get the iPhone. Down the road they will likely look to renegotiate more favorable terms.
Harvard Business School
, who specializes in corporate competition, warns that while Apple's is coming down to Earth, it's still a power player. He tells
, "Even though they're not gaining share, they're such a large piece of the market and such a driver of customer volume into their stores that people can't walk away yet. Over the longer term, clearly there will be more and more pressure on Apple if they don't find new ways to innovate."
In other words Apple may be feeling the heat, but it's still got more cash than any other phone OEM, has superior contracts, and the biggest single-handset sales in the industry -- for now.
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RE: Get ready 4 it
1/29/2013 6:18:41 PM
Market share without looking at sales figures means little.
When RIM or Nokia sells fewer units year over year, that means something negative. When Apple sells more units year over year and owns the high end of the market, that is not a negative. It simply means that the overall market is getting larger and that it is getting flooded with low end devices that don't really have market crossover since they aren't capable of doing the same things. Its like calling the death of the high end PC or laptop because the Windows market is flooded with econoboxes and netbooks.
RE: Get ready 4 it
1/29/2013 8:44:42 PM
High price market maybe. owns the high end market? what. ever.
RE: Get ready 4 it
1/30/2013 9:02:59 AM
It is certainly a higher end device than something like the now overpriced GS3 if we're looking at things like performance, display quality, build quality (even Android Authority destroyed a GS3 before they could make a crack in the iPhone 5), and battery life.
The iPhone also makes up over half of mobile smartphone traffic, app downloads, and Google mobile revenue (even over their own Android) despite there being more Android devices out there. That sort of usage doesn't come from a low end Samsung Prevail running Gingerbread that you picked up for nothing at Boost Mobile, let alone the even lower end Android-running featurephones out there.
I'd put it in the high end category for sure. Given that the iPhone also sells more than the high end GS2/GS3/GN2 combined, which by turn outsell anything by LG, HTC, or Motorola, then yeah, "owning it" that part of the market doesn't seem like a stretch either.
So yeah. What. Ever.
RE: Get ready 4 it
1/31/2013 10:21:01 AM
But Apple itself is bowing down to those pressures. When it became obvious that lower-priced tablets were the "sweet spot" in the market, analysts predicted that their sales would climb while the higher-end device sales would fall.
Apple said that they had no intention of coming out with a device to meet that lower price-point.
However, they eventually saw the writing on the wall and quickly came out with the iPad mini that was much less expensive than the original iPads.
It turns out that the analysts were right and the iPad mini is outselling their full-size iPad4 by about 4 to 1, bringing their overall profit per device down.
Again, it's not like they're in trouble right now, but the writing is on the wall. The future will see a further decline in profits for mobile devices. Mobile will become more widespread and cheaper. Like I said, they'll become commodity devices.
“So far we have not seen a single Android device that does not infringe on our patents." -- Microsoft General Counsel Brad Smith
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